Association of Chartered Certified Accountants (ACCA) Certification Practice Test

How is aggregate supply defined?

1. The total value of all goods and services sold

2. The ability of the economy to meet consumer demand

3. The total quantity of crops produced in an economy

4. The actual amount of money circulating in the economy

The correct answer is: The ability of the economy to meet consumer demand

The definition of aggregate supply centers on the economy's capacity to produce goods and services to satisfy consumer demand. It reflects the overall production capabilities at various price levels in an economy. This includes all goods and services generated within a given period, usually measured in relation to the overall output and economic activity. While the total value of all goods and services sold could suggest an understanding of economic activity, it lacks the focus on the economy's ability to meet demand at different price points. The total quantity of crops produced specifically refers to agricultural output, thus limiting the broader implications of aggregate supply. The amount of money circulating in the economy pertains more to monetary supply, not directly aligned with physical output or production capabilities. Aggregate supply emphasizes the productive capacity of the economy rather than just sales or money supply.